Back in December of 2023 my fiancé and I bought a 2BR condo in our hometown of Chicago (We currently live in Texas). We planned for my MIL to live there because her current landlord was raising rent every year. We pay about $1,700 (mortgage + HOA's) every month, and my MIL gives us $1,000. Is this considered rental income? Or is there another way this is classified. Also, my fiancé and I plan on getting married this November, so we will be filling jointly (don't know if this changes anything). Any insight would help, TIA.
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You are generating income that you otherwise would not have. The relationship of the individual really plays no factor. This is reportable rental income on schedule E.
The relationship of the individual really plays no factor.
If you're renting to a relative for below-market rates, then it counts as personal use. This means you can only claim mortgage and property tax if you itemize your regular taxes and you have to be cognizant of the SALT cap with your regular house. You also can't claim depreciation.
You have to rent to them at fair-market rates, pay taxes on all of that income (but you get to use Schedule E), and then you can give them a yearly gift (mindful of the gift tax limit or you'll also have to file Form 709) to effectively lower the amount they're paying.
See Pub 527, page 28 https://www.irs.gov/pub/irs-pdf/p527.pdf
Example 5. You rent an apartment to your mother at less than a fair rental price. You are using the apartment for personal purposes on the days that your mother rents it because you rent it for less than a fair rental price.